THE PATH OF FIVE FALLACIES

No, it’s not one of those Chinese operas from the Chairman Mao years, but rather my reaction to a recent report from the prestigious Commonwealth Fund. “The Path to a High Performance US Health System,” and its accompanying technical documentation, forecast savings for a “comprehensive set of insurance, payment, and system reforms that could guarantee affordable coverage for all by 2012, improve health outcomes, and slow health spending growth by $3 trillion by 2020.”

On a positive note, both the report and the technical documentation are well worth reading. The report assembles in a single “system” most of the proposals currently being talked about by HHS Secretary-designate Kathleen Sebelius and senior staff in the White House Office of Health Reform, while the technical documentation provides a comprehensive analysis of costs and savings that might result from these changes.

So, should we have confidence that the proposed “system” can get us close to universal coverage and make a $3 trillion dent in health care costs?

Unfortunately not. While the Commonwealth Fund report contains many sensible ideas, the conclusions are undermined by five major fallacies.

Fallacy Number One: Small businesses will accept a “play-or-pay” proposal that forces them to pay a minimum of seven percent of payroll for health care.

There are practical reasons why play-or-pay won’t be effective, but the biggest obstacle is political feasibility. While a seven-percent levy might seem modest to businesses that currently pay much more for coverage, it’s inconceivable that such a proposal in the middle of a recession would produce other than fierce opposition from NFIB and its allies. Unless health care reform is incorporated in a budget reconciliation bill—which would upend the Senate tradition of compromise—it will require sixty yea votes, something that small businesses can pretty much guarantee to prevent. (The Commonwealth Fund seems to have forgotten that business lobbyists helped defeat California’s reform bill that called for just a four percent levy.)

Fallacy Number Two: The insurance industry will allow the creation of a “public plan” to compete with their own offerings—a plan that the Commonwealth Fund estimates will drive provider payments down by as much as thirty percent compared to traditional FFS insurance, and attract up to two-thirds of the individual and group markets.

Given that for most insurers this is a bigger threat even than the 1993 Clinton bill (where at least insurers had the possibility of turning themselves into managed competition entities), the reality is that the public plan proposal is even less likely to succeed than play-or-pay—and certainly not to gain sixty Senate votes. The assumption that it would be the only FFS plan sold through the proposed insurance exchange is especially likely to leave AHIP leaders foaming at the mouth. Providers are unlikely to be too eager to go along with a proposal that slashes payment rates by thirty percent, either. So, as for play-or-pay, unless Senate Democrats gamble on utilizing the reconciliation process, the public plan—at least as assumed by the Commonwealth Fund and its consultants—is very unlikely to survive Congressional debate.

Fallacy Number Three: Government spending on IT of $120 billion over ten years will yield savings of almost $200 billion.

There are certainly strong arguments for electronic medical records, but the forecast savings are unlikely to be anything but illusory. Integrated health care systems like Kaiser may be able to achieve significant savings (hopefully, given the $4 billion that Kaiser has sunk into its own IT project), but the great majority of US providers have neither the same level of integration nor the same incentives. A more realistic view is found in last year’s Congressional Budget Office report on health care issues: “By itself, the adoption of more health IT offers many benefits, but it is generally not sufficient to produce substantial cost savings because the incentives for many providers to use that technology to control costs is not strong.” (By the way, did anyone in the White House think to ask their own Budget Director, Peter Orszag, who oversaw the preparation of the CBO report, before deciding to spend $19 billion on health care IT?)

Fallacy Number Four: Establishment of a “Center for Comparative Effectiveness and Health Care Decision-Making” will cut expenditures by more than $600 billion over the next decade.

While it’s hard to argue against something that seems so sensible (we’d all prefer our physicians to know what works best), the savings projection seems wildly optimistic. The $600 billion estimate assumes that more intrusive--but unfunded--public program claims processing procedures will dramatically change provider behavior. We know from the Dartmouth Atlas reports that there’s lots of room for improvement, but without the control over resources that the UK’s NICE enjoys, it’s hard to believe that high-cost providers will go along with slashing their incomes (see Fallacy Number Five). And as the CBO report notes: “it would probably take several years before new research on comparative effectiveness could reduce health spending substantially.”

Fallacy Number Five (perhaps the biggest fallacy of all): Providers and patients will behave the way the Commonwealth Fund (and most of the rest of us) would like them to.

Unfortunately, this piece of wishful thinking is at odds with the incentives in our current supply-driven health care system. Outside of entities like Geisinger, Kaiser, and the Mayo Clinic, improvements in provider efficiency are likely to cut incomes, not increase them. It’s no coincidence that areas with the greatest physician and hospital densities have the highest health care costs. In a health care version of Parkinson’s Law (“Work expands so as to fill the time available for its completion”), availability of resources—whether high-tech imaging equipment or physician time—means that the resources will be utilized in patient care. Unless we can change the incentives, or control the introduction or distribution of new resources, we will never solve the health care cost problem.

(An earlier version of this piece appeared in The Health Care Blog.)